Fall in Building Approvals Worries Construction Industry

A second month of falls in the number of new houses and apartments approved for construction in Australia has industry groups concerned an anticipated recovery in residential building may not materialise or may be weaker than originally expected.

Commenting on new figures from the Australian Bureau of Statistics showing a seasonally adjusted fall of 6.6 percent in the number of dwelling units approved throughout June, Housing Industry Association Senior Economist Shane Garrett says multi-residential apartment approvals are down by more than a third compared with a year ago.

“We had hoped that the fall in residential building approvals during May was a blip but today’s figures now show two consecutive quarters of decline” Housing Industry Association Senior Economist Shane Garrett says.

“There had been some signs in earlier months that a housing recovery was underway but today’s figures put a large question mark over that. We continue to see weakness in segments of the market like multi-units as well as in regions like Victoria and Tasmania. As long as this weakness persists, there is no prospect of a broad-based recovery occurring.”

Garrett says urgent action is needed to stimulate activity in the sector – a call which follows the recent release by HIA of a 50 point plan to stimulate home building activity.

“For some time, we have been calling for structural impediments on housing activity to be reduced, including the taxation burden, excessive planning barriers and regulatory costs” Garrett says, adding that the figures make a further interest rate cut next week an ‘imperative’. “The forthcoming election provides a real opportunity for solutions to these issues to be advanced.”

Master Builders Australia Chief Economist Peter Jones agrees, referring to the latest figures as a ‘bitter pill’ for residential builders who are yet to see a recovery on the ground.

“The figures for June 2013 released by the Australian Bureau of Statistics today shows the total number of dwellings approved seasonally adjusted fell 6.9 per cent, with private sector houses falling 1.2 per cent and ‘other dwellings’ including units, townhouses and apartments falling 12.6 per cent.”

“This is a disappointing result that threatens what has been a tepid upturn to date.”

The latest data comes amid increasing concern about the strength of any likely recovery in residential construction as resource investment drops back – albeit with the latest fall reflecting a significant drop in the notoriously volatile multi-residential approvals following recent high readings and a reasonably strong reading in the more statistically stable sector of single-unit private houses (see chart).

Whilst both Master Builders and HIA expect an improvement in the sector over the next twelve months, economic forecasting firm BIS Shrapnel actually expects a two percent fall in housing starts in 2013/14 and a delay in recovery until 2014/15.

In terms of states, seasonally adjusted approval numbers (not available for smaller states/territories) rose in Queensland (+7.0 per cent) and New South Wales (+6.7 per cent) but plummeted in Victoria (-24.3 per cent) and also fell in South Australia (-9.6 per cent) and Western Australia (-0.4 per cent).